AbbVie Agrees to Buy Stemcentrx, Reports Jump in Earnings

Drugmaker AbbVie Inc. agreed to acquire a cancer-drug developer, Stemcentrx Inc., for $5.8 billion, continuing AbbVie’s aggressive push to build an oncology business.

With the cash-and-stock acquisition, which includes potential additional payments of up to $4 billion if certain drug-development goals are hit, AbbVie gains Stemcentrx’s experimental treatment for a form of lung cancer, plus other experimental drugs.

AbbVie said the lung-cancer treatment, dubbed Rova-T, has multi-billion-dollar sales potential, based on clinical trials showing it shrank lung tumors in a significant portion of patients receiving it. It would also expand AbbVie’s cancer-drug lineup beyond those for blood cancers, to include treatments for tumors in solid organs.

“We’re impressed with this,” AbbVie Chief Executive Richard Gonzalez told analysts on a conference call Thursday. “We think Rova-T is a very good asset and gives us a strong position on solid tumors going forward.”

Stemcentrx is a privately held company founded in 2008 in South San Francisco, Calif., with about 200 employees. It specializes in designing drugs to target cancer stem cells, which are the cells that cause cancer to spread throughout the body. In March, The Wall Street Journal reported that Stemcentrx was pursuing a sale and was seeking a more than $5 billion price tag.

The agreement is the latest in a series of deals AbbVie has struck to try to reduce its heavy dependence on the anti-inflammatory drug Humira, which faces potential competition from copycat drugs in coming years. AbbVie was spun off from Abbott Laboratories in early 2013.

Last year, AbbVie paid $21 billion to buy Pharmacyclics Inc., which gave it partial rights to the blood-cancer drug Imbruvica. And last week AbbVie announced two separate deals to license rights to experimental cancer drugs developed by other companies.

Earlier this month, U.S. regulators approved Venclexta, a treatment for a form of leukemia that was co-developed by AbbVie and Roche Holding AG.

Stemcentrx has been studying Rova-T in a form of cancer known as small-cell lung cancer. AbbVie expects the drug could reach the market in 2018 if it is approved by regulators.

J.P. Morgan analyst Chris Schott said the deal “brings the company an interesting late-stage asset in small-cell lung cancer with the potential for much broader usage over time.”

AbbVie expects the acquisition to reduce 2016 earnings by 20 cents a share due to research and other costs it will inherit with the deal. It expects the purchase to start adding to earnings in 2020. AbbVie lowered its 2016 per-share earnings estimate to $4.62 to $4.82, from its previous estimate for $4.90 to $5.10, to reflect the deal’s impact.

AbbVie shares fell 0.9% to $60.14.

AbbVie said the deal includes $2 billion in cash, with the remainder of the transaction in stock. AbbVie said it plans an accelerated buyback of as much as $4 billion of its shares when the deal closes, which is expected in the current quarter.

AbbVie also reported Thursday a 32% increase in first-quarter profit, while sales rose 18%. Sales of Humira rose 14.9% to $3.58 billion. Sales of AbbVie’s hepatitis C drug Viekira Pak rose 79% to $414 million, but the drug is falling short of initial expectations. Mr. Gonzalez said sales have been hurt by a competing new drug from Merck & Co., Zepatier.

Over all, AbbVie reported a quarterly profit of $1.35 billion, or 83 cents a share, up from $1.02 billion, or 63 cents a share, a year earlier. Excluding one-time items, per-share earnings rose to $1.15 from 94 cents. The company expected adjusted per-share earnings of $1.13 to $1.15.

Revenue increased 18% to $5.96 billion. On an operational basis, which excludes currency impacts, revenue improved 22%. Analysts polled by Thomson Reuters expected $5.97 billion.


April 28, 2016

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